PROJECT COST ANALYSIS

Dr A P Dash
Professor, NTPC School of Business
PROJECT COST ESTIMATION STAGES

IMPORTANT MILESTONES
• Feasibility Stage
• Procurement Stage
• Implementation Stage
• Completion stage
PREPARATION OF FEASIBILITY
REPORT COST ESTIMATE
PURPOSE OF A COST ESTIMATE – FR
STAGE

• To examine Techo-commercial viability of

the Project (checklists & approvals)
• To facilitate the Investment approval from
Competent Authority (financial closures)
• To facilitate resources planning and
budgeting
PREPARATION OF FEASIBILITY REPORTS
• COMPONENTS OF FEASIBILITY REPORT
CAPITAL COST
» WORKS COST
» OVERHEADS INCLUDING PROJECT
MANAGEMENT, PRE-COMMISSIONING,
CONSULTANCY EXPENSES
» INTEREST DURING CONSTRUCTION &
FINANCING CHARGES
» WORKING CAPITAL MARGIN
PREPARATION OF FEASIBILITY REPORTS
• WORKS COST
» CIVIL WORKS
» PLANT & EQUIPMENT
 MECHANICAL WORKS
 ELECTRICAL WORKS
 TRANSPORTATION WORKS
 INITIAL SPARES
PREPARATION OF FEASIBILITY REPORTS
• OVERHEADS
» PRE-COMMISSIONING EXPENSES
» PROJECT MANAGEMENT EXPENSES
» CONSULTANCY
• INTEREST DURING CONSTRUCTION (IDC)
•Interest and any other finance charges

• WORKING CAPITAL MARGIN

PREPARATION OF FEASIBILITY REPORTS
• FINANCIAL ANALYSIS
» LEVELISED REVENUE
» LEVELISED COST
» CASH FLOW ANALYSIS
• SENSITIVITY ANALYSIS
• ANTICIPATED COMPLETION COST
• INTER PROJECT COMPARATIVE
STATEMENT

(CONTD...)
PREPARATION OF FEASIBILITY REPORTS
FOR WORKING OUT PLANT & EQUIPMENT
COST, FOLLOWING CENTAGES ARE
NORMALLY FOLLOWED IN RESPECT OF
FREIGHT & INSURANCE(F&I), ERECTION &
SPARES
F&I : 4% of Equipment
Erection : 10% Equipment price
Spares : As per actuals

(CONTD...)
 Case : NTPC
CERC NORMS FOR SPARES

Coal Based Plants : 2.5% of the

Power Plant Cost
Gas Based Plants : 4% of the
Power Plant Cost

(CONTD...)
PREPARATION OF FEASIBILITY REPORTS
• BASIS FOR CALCULATION OF
INTEREST DURING
CONSTRUCTION(IDC) & FINANCING
CHARGES
IDC IS DEPENDENT UPON VARIOUS
FACTORS SUCH AS :
» DEBT : EQUITY RATIO
» TYPE OF DEBT - EXTERNAL COMMERCIAL
BORROWINGS(ECB) / DOMESTIC
COMMERCIAL BORROWINGS(DCB)
(CONTD...)
TYPICAL EXAMPLE FOR WORKING OUT IDC
• ESTIMATED COST : Rs. 100 Crores
• DEBT : EQUITY RATIO : 70 : 30
• TIME SCHEDULE : 4 YEARS
• PHASING OF EXPENSES
» Ist Year : Rs. 20 Crores
» IInd Year : Rs. 30 Crores
» IIIrd Year : Rs. 30 Crores
» IVth Year : Rs. 20 Crores

• RATE OF INTEREST : 10%

TYPICAL EXAMPLE FOR WORKING OUT IDC
• ASSUMING DEBT AND EQUITY BEING SOURCED
IN THE PROPOTION, THE DEBT COMPONENT
EVERY YEAR WILL BE AS FOLLOWS :

» Ist Year :Rs. 14 Crores (Rs. 20 Cr.x 0.7)

» IInd Year :Rs. 21 Crores (Rs. 30 Cr.x 0.7)
» IIIrd Year :Rs. 21 Crores (Rs. 30 Cr.x 0.7)
» IVth Year :Rs. 14 Crores (Rs. 20 Cr.x 0.7)

(CONTD...)
TYPICAL EXAMPLE FOR WORKING OUT IDC
• SINCE EXPENDITURE WILL BE OCCURING
THROUGHOUT THE YEAR, IT WILL BE ASSUMED
AT A MIDPOINT FOR WORKING OUT THE
INTEREST ON LOAN COMPONENT. THEREFORE,
THE INTEREST COMPONENT DURING
CONSTRUCTION WILL BE AS FOLLOWS
» Ist Year : Interest component for the loan
drawn during first year for 6 months(mid
point)
» IInd Year : Interest component for the loan drawn
during first year(i.e opening balance
for IInd Year) for full one year +
Interest component for the loan for
second year for 6 months(mid point)
(CONTD...)
TYPICAL EXAMPLE FOR WORKING OUT IDC

» IIIrd Year : Interest component for the loan

drawn during first two years for
full year +Interest component fot
the loan for IIIrd Year for 6
months (mid point)
» IVth Year : Interest component for the loan
drawn during first three years for
full year + Interest component for
the loan for fourth year for 6
months(mid point)

(CONTD...)
TYPICAL EXAMPLE FOR WORKING OUT IDC
• ACCORDINGLY, INTEREST DURING
CONSTRUCTION COMPONENT WORKS OUT TO
BE :
» Ist Year : Rs. 0.7 Crs.(Rs. 14 Cr.x0.1x0.5)
» IInd Year : Rs. 2.45 Crs.( Rs. 14 Cr.x 0.1+Rs.
21 Cr.x0.1x0.5)
» IIIrd Year : Rs. 4.55 Crs.(Rs. 35 Cr.x 0.1+Rs.
21 Cr.x0.1x0.5)
» IVth Year : Rs. 6.3 Crs.(Rs. 56 Cr.x0.1+Rs.
14 Cr.x0.1x0.5)
TOTAL : Rs. 14.0 Crs.
TYPICAL EXAMPLE OF COMPONENTS
OF PROJECT COST (MEGA)

WCM
IDC Civil
Overheads 2%
14% 18%
4% Civil
Plant & Equipment
Taxes & Duties
Taxes & Duties
1% Overheads
IDC
WCM
Plant &
Equipment
61%
Thank you